December 8, 1998 ADVANCE COPY OF INTERNAL REVENUE BULLETIN ITEM Attached is an advance copy of Revenue Ruling 98-59, describing the

1999 inflation adjusted amounts under section 7872(g). It will appear in Internal Revenue Bulletin 1998-52, dated December 28, 1998. You may release this rev. rul. immediately. Communications Division

Part I Section 7872.--Treatment of Loans with Below-Market Interest Rates

Rev. Rul. 98-59 This revenue ruling publishes the amount that § 7872(g) of the Internal Revenue Code permits a taxpayer to lend to a qualifying continuing care facility without incurring imputed interest. after 1986. Section 7872 generally treats loans bearing a below-market interest rate as if they bore interest at the market rate. Section 7872(g)(1) provides that, in general, § 7872 does not apply for any calendar year to any below-market loan made by a lender to a qualified continuing care facility pursuant to a continuing care contract if the lender (or the lender's spouse) attains age 65 before the close of the year. Section 7872(g)(2) provides that, in the case of loans made after October 11, 1985, and before 1987, § 7872(g)(1) applies only to the extent that the aggregate outstanding amount of any loan to which § 7872(g) applies (determined without regard to § 7872(g)(2)), when added to the aggregate outstanding amount of all other previous loans between the lender (or the lender's spouse) and any qualified continuing care facility to which § 7872(g)(1) applies, does not exceed $90,000. The amount is adjusted for inflation for the years

-3Section 7872(g)(5) provides that, for loans made during any calendar year after 1986 to which § 7872(g)(1) applies, the $90,000 limit specified in § 7872(g)(2) is increased by an inflation adjustment. The inflation adjustment for any calen-

dar year is the percentage (if any) by which the Consumer Price Index (CPI) for the preceding calendar year exceeds the CPI for calendar year 1985. Section 7872(g)(5) states that the CPI for

any calendar year is the average of the CPI as of the close of the 12-month period ending on September 30 of that calendar year. Table 1 sets forth the amount specified in § 7872(g)(2) of the Code. The amount is increased by the inflation adjustment

for the years 1987-99.


REV. RUL. 98-59 TABLE 1 Limit under 7872(g)(2) Year Before 1987 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Note: Amount $ 90,000 $ 92,200 $ 94,800 $ 98,800 $103,500 $108,600 $114,100 $117,500 $121,100 $124,300 $127,800 $131,300 $134,800 $137,000

These inflation adjustments were computed

using the All-Urban, Consumer Price Index 1982-1984 base, published by the Bureau of Labor Statistics.

EFFECT ON OTHER DOCUMENTS Rev. Rul. 97-57, 1997-2 C.B. 275, is supplemented and superseded. DRAFTING INFORMATION The author of this revenue ruling is Diana A. Inhof of the Office of Assistant Chief Counsel (Financial Institutions and Products). For further information regarding this revenue

ruling, contact Ms. Inhof on (202) 622-3930 (not a toll-free call).